Corn futures rise the most this month as US sees smaller inventory gain

Corn futures rose the most this month after the government said inventories in the US will be smaller than expected because of an increase in demand for the grain.

Reserves before this year's harvest will total 1.74 billion bushels, less than the 1.9 billion forecast last month, because of increased consumption at domestic ethanol plants and rising exports to feed livestock herds, said the USDA in its report. Before May 11, corn fell 11% this year on speculation that farmers will harvest a record crop.

"Corn demand is increasing. The supply cushion against weather problems this year is shrinking," said Mark Schultz, the chief analyst for Northstar Commodity Investment Co. in Minneapolis.

Corn futures for July delivery rose 6.5 cents, or 1.8%, to US$3.77 a bushel at 10.20a.m. on the Chicago Board of Trade on May 11. A close at that price would mark the biggest gain since April 28, 2010. The most-active contract rose 8.8% in April after China, the second-biggest producer and consumer, bought the most US corn in nine years.

The last time China was a net importer was 14 years ago, when drought reduced its crop. China imported 1.476 million tonnes of corn in the marketing year that ended September 30, 1996, down from 4.287 million purchased a year earlier in 1995.

The USDA forecasted Chinese production of 166 million tonnes this year, up from an estimated 155 million last year. The most-active corn futures on the Dalian Commodity Exchange on May 11 rose to US$7.2269 a bushel, the highest ever.

"As long as Chinese corn prices are rising and at a big premium to US corn prices, the Chicago market will be supported," Schultz said. "There continues to be speculation China will buy more US corn later this year."